Opinion: U.S. Sub Suppliers at Risk From Foreign Competition

U.S. made parts in this Virginia-class submarine could be replaced by foreign components.

Chief of Naval Operations Adm. Jonathan Greenert has long warned of a decline in U.S. companies that provide critical components to the nation’s most technologically sophisticated hardware: nuclear submarines and aircraft carriers.

“I worry about the industrial base,” Greenert said at the Credit Suisse/McAllese Defense Programs Conference in Washington, D.C., on March 12. “Ninety percent of the industry that builds our nuclear components is single source. . . . It’s the second or third tier. It’s ‘Bob’s Nuclear Valve Shop.’”

Greenert should be concerned. The loss of even few sole-source suppliers could mean costly delays and considerable unanticipated expense, just as the Navy’s program to replace the aging Ohio-class ballistic-missile submarines ramps up.

The businesses must deal with government’s irregular demand for their products. A modern nuclear submarine averages more than 1 million individual parts and components—most without commercial application. Many companies supporting submarine production have only one customer.

As those companies close, the U.S. Navy may be forced to deal with foreign suppliers for critical items and materials.

The issue becomes one of national security. If sourced only from abroad, there are no guarantees that Navy needs will be met in times of a crisis. U.S. ability to produce defense products will become dependent on global trade conditions, which may not always favor the United States, especially when other buyers, such as China, are willing to pay more and drive up costs.

The most illustrative example of things to come may be gleaned from a third tier, Connecticut-based, copper-nickel (Cu-Ni) tubing supplier Ansonia Specialty Metals, LLC.

The longtime provider of Cu-Ni naval tubing is the only U.S. company that provides military/marine-grade tubing products measuring of 4.5 inches or larger in diameter. With literally hundreds of miles of Ansonia’s Cu-Ni tubing in use on board U.S. submarines, aircraft carriers, destroyers, and amphibious warships, the Navy has come to rely on the high-tech manufacturing processes the firm has developed over the years.

With near-zero commercial applications for large diameter Cu-Ni tubing, Ansonia is totally dependent on the Navy. Reduced shipbuilding, combined with intense foreign competition, has slowly been driving Ansonia to the brink. Over the past few years, it has been forced to let go of nearly half its employees, from 70 now down to 35.

“We cannot go on another month,” John Barto, Ansonia vice president and general manager, said in an interview on 8 May. “Essentially, I am now out of the business, our orders are so small—and if we don’t get substantial orders soon we are going to have to exit this business sector altogether.“

General Dynamics Electric Boat has been purchasing Cu-Ni tubing from KME, an Italian-German corporation, Barto said. According to Barto, KME charges Electric Boat far less than it does customers in Europe—radically lowering prices—with the intention of putting Ansonia out of business.

“We are also under attack by a supplier in Mexico, Nacobre. It employs predatory pricing, essentially dumpingk to push us out of our own market,” Barto said. If Ansonia were put out of the defense business, non-U.S. companies then could set any price structure they wished, he said, leaving the Navy with no U.S. alternative.

“Our warfighters cannot have substandard parts and components. Our Cu-Ni tubing is used for fire suppression and nuclear cooling lines, to mention just a few,” Barto said.

The hazards of relying on foreign nations for defense material are detailed in a May 8report. Remaking American Security: Supply Chain Vulnerabilities & National Security Risks Across The Defense Industrial Base, released by the Alliance for American Manufacturing, the document describes the risk to national security posed by supply-chain disruptions.

“The loss of Cu-Ni tubing production capability and a resulting supply shortage would have a significant impact and would reduce the ability to build and repair ships and submarines and damage U.S. Navy readiness. Ships and submarines could not be built or repaired without using a less-acceptable substitute. If the United States Cu-Ni tubing were unavailable during a conflict, the U.S. Navy’s readiness would be negatively impacted. . . . If Ansonia were unable to remain in business and KME stopped supplying Cu-Ni tubing, the U.S. Navy would be highly vulnerable to a supply disruption.”

Barto’s company is not waiting for the Navy to toss out a life preserver and come to the rescue.

“Fortunately . . . we have identified a new product in the oil and gas industry. Once this takes off we may exit the government market. Right now it is not economical to try to keep them as a customer; although I would like to remain a sole-source provider, I just can’t keep banging my head against the wall,” he said.

Should the Navy reduce submarine construction to one per year, Connecticut-based supplier Prime Technology will be unable to remain in operation.

“We supply gauges and meters for all U.S. Navy submarines. We have over 70 of our product components on a submarine right now and we are barely hanging on . . . a single submarine is not a lot of business for us, we have been able to survive on two boats per year, but if they take one out we’re in trouble,” Keith MacDowall, Prime Technology vice president of sales and marketing, said in a 19 April interview.

“Our only substantial client is Electric Boat. We feel anything they get hit with. The question is what can they do if there are more cuts. . . . If that were to happen we won’t be able to respond as we can now to urgent requests,” MacDowell said.
“We have a very small commercial client base but require a cleared production facility and that means high overhead. Most of our products just don’t have commercial application. . . . Sales dropped into the seven-figure range last year. We waited as long as we could for things to get better, but had to let go several staff. Now, we have to cut back another several thousand a month in payroll. Any further cuts will be our core staff, engineers.”

Another company, Ward Leonard , supplier of naval motors and control stations, “made the decision to diversify a few years ago when submarine production was reduced. . . . The business was approximately 90 percent DOD; we moved into the oil and gas industry and now the split is closer to 50-50,” said Bill Berger, Ward Leonard development executive, on 17 April.

Maintaining an intact supply chain has been a major challenge for Ward Leonard.

“Our staff continuously looks for alternate suppliers; when we have to switch, suppliers’ prices usually go up,” Berger said.

His company has seen about 10 percent of its small business supply base, “either go out of business because of spending slowdowns or they moved into commercial areas.”

Like Greenert, Berger is concerned, “about the smaller shops of less than five employees; these typically don’t have the cash reserves to hold on in tough times. . . . It is the uncertainty—more than actual effects of the sequestration—that I think is causing the most harm right now. . . . I can operate in an environment where I know what to expect. What is so damaging is when everything is pushed off, and no one knows when production is going to return to normal. A lot of small companies cannot survive.”

Ansonia’s Barto believes that the leadership in the military and Congress aren’t doing enough. “Our government knows about the problem, but no one is working to do anything about it,” he said.